PREVIEW-China Jan CPI seen at 2.0 pct despite food price rise

February 04, 2013|Reuters

* Jan CPI seen up 2.0 pct on year vs +2.5 pct in Dec * Dec PPI seen down 1.6 pct on year vs -1.9 pct in Dec * Data expected Friday at 0130 GMT

BEIJING, Feb 5 (Reuters) - China's annual consumer inflationlikely eased from December's seven-month high despite continuedstrength in meat and vegetable prices, with most economistsseeing price pressures remaining at bay for a few months atleast. A median forecast of 17 economists showed inflation runningat 2.0 percent in January, ahead of the Lunar New Year, China'smost important holiday. That's down from a seven-month high of2.5 percent in December, when a cold snap drove up vegetableprices. "The fall will be food-driven, and not as steep as consensushas it, but should have a positive impact on the current mood,creating an impression of a Goldilocks economy with inflationunder control and solid growth," wrote Credit Agricole economistDariusz Kowalcyzk. "This is unlikely to last: we see a modest growth slowdownand a pick up in inflation from Q213 on." Where economists see a comfortable lack of price pressure,giving policymakers room to keep liquidity in the system for thetime being, a Chinese shopper sees sticker shock. Chinese consumers are particularly sensitive to food pricesbefore the New Year, when far-flung families gather foronce-a-year feasts. Indeed, food prices are likely to be a significant driverfor January's inflation figure. Data compiled by China'sMinistry of Commerce shows that the prices of most vegetablescontinued to rise in January compared with end-December levels,as did prices for pork, China's staple meat. Tofu, cooking oil and poultry prices fell, reflecting asteady fall in international soybean futures from record highsreached in the summer. However, the price of beef and mutton, consumed more in thenorth and west, is at an uncomfortable 60 yuan ($9.64) perkilogram. That's more expensive than average retail beef pricestracked by the United States Department of Agriculture, despitemuch higher average incomes in the U.S. than in China. Public discomfort with rising prices could increase thissummer, when cyclical factors are expected to once more push uppork prices after a benign 2012. That could test policymakers, which have allowed moderatepolicy easing to offset the impact of sluggish demand fromChina's export markets, and the ongoing effects of credit curbsdesigned to curb real estate speculation. Nomura economists Zhiwei Zhang and Wendy Chen noted thatsharp rises in input prices reflected in complementaryPurchasing Managers' Index (PMI) surveys published last weekendpoints to an upward trend in inflation this year. Producer prices in China tumbled for much of last year, asweak demand weighed on the cost of raw materials. Economists polled by Reuters predicted China's producerprice index likely dipped 1.6 percent in January from a yearago, moderating from December's annual factory gate deflation of1.9 percent thanks to firming economic growth and a lower baseof comparison. Late last month, the Chinese Academy of Social Sciencesrevised up its growth forecast for 2013, reflecting a revival inthe pace of growth that began in the fourth quarter. But it alsorevised up its forecast for 2013 inflation to 3.5 percent, fromits previous outlook of 3.0 percent. Wary of triggering a spike in inflation, the People's Bankof China has prefered quiet tweaks to forceful policy easing. After cutting interest rates twice between June and Julylast year, it has abstained from further cuts despite widespreadmarket calls for looser policy. It has also refrained from lowering banks' reserverequirements (RRR) since May 2012, when it cut the ratio of cashit requires lenders to hold as reserves by 50 basis points to 20percent for China's biggest banks. Instead, the central bank has preferred in recent months toease policy by adding cash through short-term open marketoperations, a measure that analysts say is more flexible thanoutright cuts in rates or reserve requirements. China's National Bureau of Statistics will release officialCPI and PPI data on Friday.